Draft I-T rules 2026 explained: How you can save Rs 1.41 lakh tax outgo

The Income Tax Department has released the Draft Income Tax Rules 2026, which erstwhile approved volition beryllium applicable for FY 2026-27. For salaried and mediate people income taxpayers, respective changes person been proposed, which volition person implications for their taxable income and full taxation outgo.These draught rules suggest to marque important changes to the limits and scope of sum for fashionable exemptions specified arsenic location rent allowance, children acquisition allowance, hostel allowance etc. which had not been revisited successful respective decades. Additionally, the request of quoting PAN card for respective transactions has undergone revision.The draught income taxation rules correspond to the caller Income Tax Act 2025 which is acceptable to beryllium implemented from April 1, 2026.

These draught rules are unfastened for suggestions till 22 February 2026, aft which the authorities volition notify the last rules for implementation.According to Kuldip Kumar, Partner, Mainstay Tax Advisors, the draught reflects the attack adopted successful the Income-tax Act, 2025, with simplified language, improved structure, and the removal of redundant provisions, making the rules easier to work and reference. “While introducing these changes, the authorities has besides kept relevance and practicality successful view,” Kuldip Kumar tells TOI.

What bash the draught income taxation rules mean for the communal man? How does the calculation mathematics for the aged vs caller income taxation authorities change? How overmuch much taxation tin you present prevention nether the aged authorities with revised exemption and deduction limits? Here are the apical changes taxpayers should know:

HRA Benefits: Number of Cities for 50% Exemption Increased

In a large alleviation for taxpayers successful large metro cities, the draught Income Tax Rules 2026 suggest to see Ahmedabad, Pune, Bengaluru, and Hyderabad successful the 50% bounds category.The 50% HRA exemption (currently lone for metro cities similar Delhi, Mumbai, Chennai, Kolkata) is projected to beryllium extended to different ample cities specified arsenic Bengaluru, Hyderabad, Pune, and Ahmedabad, allowing employees successful these cities to assertion a higher tax-free HRA.What is the existent HRA rule? At contiguous HRA exemption is calculated arsenic 50% of wage if you unrecorded successful a metro, oregon 40% of wage if you unrecorded successful a non-metro city. Now, employees successful the added database of cities volition beryllium capable to avail higher HRA exemptions.As Shalini Jain, Tax Partner astatine EY India explains: for location rent allowance, portion the look for calculating the exemption magnitude has not changed, the draught rules suggest to summation the fig of cities for which 50% of “salary” needs to beryllium considered for the intent of calculating the exemption amount. “Cities specified arsenic Hyderabad, Pune, Ahmedabad and Bengaluru are projected to beryllium added to the database taking into relationship increasing colonisation and occupation opportunities successful these cities,” she tells TOI.According to Richa Sawhney, Partner - Tax, Grant Thornton Bharat, the connection to widen the 50% HRA exemption to Bengaluru, Hyderabad, Pune, and Ahmedabad rightly acknowledges the crisp emergence successful rental costs successful these cities. “Housing expenses person escalated rapidly successful caller years, and this determination would supply meaningful alleviation to taxpayers residing successful these cities,” she tells TOI.Kuldip Kumar of Mainstay Tax Advisors sees a constricted interaction connected the exchequer, arsenic a ample fig of taxpayers person already shifted to the caller taxation regime, wherever HRA exemption is not available.

Education, Hostel Allowance Hike

For children acquisition allowance, the exemption bounds of Rs 100 per period per kid is projected to beryllium accrued to Rs 3,000 per period per kid which is simply a important leap from the existent monetary limit.Similarly, for hostel expenditure, the exemption bounds is projected to beryllium accrued to Rs 9,000 per period per kid nether the draught rules arsenic compared to Rs 300 per period per kid disposable nether the existent Income-tax Rules, 1962.

Both these exemptions tin beryllium availed for a maximum of 2 children by the taxpayer.“While these projected revisions are overmuch needed considering the exponential summation successful acquisition and hostel expenses implicit the years and rising migration of taxpayers to different cities, these exemptions are disposable lone if the salaried payer opts for the aged taxation authorities for taxation purpose,” Shalini Jain from EY India points out.

How You Can Save Rs 1.41 Lakh Tax

According to an investigation by ClearTax done for TOI, an idiosyncratic with 2 kids earning astir Rs 35 lakh successful a metropolis similar Bengaluru, the taxation payment nether the aged income taxation authorities volition spell substantially.Archit Gupta, Founder and CEO of ClearTax explains with an example:

In this lawsuit study, helium looks astatine a nonrecreational surviving successful a rented location successful Bengaluru (paying Rs 87,500/month) with 2 children successful a hostel. The savings travel from immoderate circumstantial updates successful the draught rules:1. The Metro Upgrade (HRA)

2. Education & Hostel Allowances

The Bottom Line: These changes combined little the full taxable income by astir Rs 4.5 lakh, erstwhile filed successful the aged taxation regime.

“For an idiosyncratic earning Rs 35 lakh, redeeming implicit Rs 1.41 lakh isn't conscionable a deduction connected paper, it is existent wealth backmost successful the pocket. “This is simply a pro-middle-class correction that yet helps equilibrium income against the rising outgo of living,” Archit Gupta tells TOI.

Revised Perquisite Valuation for Employer Provided Motor Cars

According to Kuldip Kumar, the summation successful the valuation of employer-provided cars utilized for some authoritative and idiosyncratic purposes—where moving and attraction costs are borne by the employer—will adversely impact impacted employees (generally mid-level and supra who get this benefit). The yearly further taxation interaction for specified employees successful the 30% taxation bracket could scope from astir Rs 19,843 to Rs 31,356, depending connected motor capableness of the car provided and the applicability of surcharge based connected their income levels, helium tells TOI.Sudhakar Sethuraman, Partner, Deloitte India explains however the method of valuing perquisites wherever a institution provides a car to an worker has been updated arsenic under:

Mandatory Quoting of PAN Card

The draught Income Tax Rules 2026 besides suggest changes to the limits of respective transactions wherever PAN Card fig needs to beryllium quoted. For example, presently if you deposit currency supra Rs 50,000 successful a day, you request to punctuation your PAN Card. Under the caller rules, PAN Card volition beryllium mandatory for currency deposit of Rs 10 lakh successful a fiscal year.Similarly, currency withdrawal from a banking institution oregon station bureau of much than Rs 10 lakh successful a fiscal twelvemonth volition present necessitate a PAN Card, if draught rules are approved. Below is the afloat database of changes you should know:

Draft Income Tax Rules 2026: Some Other Important Changes

“The enhancement of different limits—such arsenic gifts successful kind, interest-free loans, and escaped nutrient from Rs 50 to Rs 200 per meal—is apt to payment a wide scope of salaried employees, peculiarly successful sectors specified arsenic IT wherever specified benefits are commonly provided,” Kuldip Kumar tells TOI.He is of the presumption that the authorities is present good placed to consider, successful the adjacent future, an automated mechanics to periodically revise these limits by linking them to the Cost Inflation Index, truthful that the existent worth of benefits is preserved twelvemonth connected year, alternatively than requiring adjustments aft agelong intervals. “This should besides beryllium extended to modular deduction and different disposable deductions nether the Income Tax Act, 2025,” helium says.

New vs Old Tax Regime: The Choice After Hike In Exemptions

It is important for taxpayers to enactment that benefits of a hike successful HRA exemptions for immoderate cities, acquisition and hostel allowances are lone disposable nether the aged income taxation regime. Hence, the prime betwixt the caller and aged income taxation authorities assumes value for the upcoming fiscal year.

In effect, adjacent though income taxation slabs person not been changed nether the aged and caller authorities for FY27, caller calculations volition request to beryllium done successful cases wherever the acquisition and HRA benefits person gone up nether the aged regime.“Salaried taxpayers who take to get taxed nether the caller taxation authorities volition not beryllium capable to avail the payment of these enhanced limits. Therefore, salaried taxpayers volition request to comparison the taxation interaction based connected idiosyncratic circumstances to determine which taxation authorities is much beneficial for them,” Shalini Jain of EY India says.A illustration examination by EY for a salaried payer earning gross wage of Rs 25,00,000 is fixed beneath wherein the payer whitethorn beryllium capable to power to aged taxation authorities based connected assumptions highlighted beneath the tables:

Assumptions:

As Richa Sawhney, Partner - Tax, Grant Thornton Bharat points out: Several thresholds person been enhanced to marque them much successful tune with the existent fiscal realities, factoring successful the rising costs of living. It whitethorn beryllium utile for salaried taxpayers to reassess their taxation positions nether the aged and the caller regime, taking into relationship these changes, to measure which authorities works champion for them going forward.According to Shalini Jain, from the government’s perspective, the messaging seems to beryllium clear, though successful a subtle way, that the aged taxation authorities whitethorn proceed to stay disposable successful the adjacent future.